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Tuesday, March 06, 2007

Gold Bounces From "Oversold"

Bloomberg reports on currencies. "The yen fell the most in more than two years versus the euro as global stocks rebounded, increasing concern that investors may resume selling the Japanese currency to finance purchases of higher-yielding assets. Japan's yen also had the biggest one-day slump in five months against the dollar as signs that shares are stabilizing may prompt traders to return to the carry trade, taking advantage of the lowest borrowing costs among major economies."

"The yen gained 2.6 percent against the dollar over the past three trading days as a rout of global stocks and emerging-market assets triggered the unwinding of the carry trade. 'The unwinding of yen carry trade is running out of steam,' said Jens Nordvig, a senior currency strategist at Goldman, Sachs & Co. 'Risk reduction is fading. The dollar and euro are helped by the equity markets.'"

"The Japanese currency also weakened 1.5 percent against the British pound, 1.5 percent versus the Australian dollar, 2.1 percent against New Zealand's dollar and 2.4 percent versus the South African rand."

"The U.S. currency fell to $1.9314 per pound from $1.9205 yesterday. The dollar also declined to $1.3126 per euro from $1.3090, and weakened to 85 U.S. cents versus the Canadian currency from 84.67 cents."

"The Swiss franc, which is also used to fund the carry trade, weakened versus 15 most-active currencies. 'The reversal of the recent sell-offs in the equity markets put a stop on the yen rally temporarily,' said Robert Fullem, vice president of U.S. corporate FX sales at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. 'Some players have started to put back on carry trades to test the water.'"

"Losses in the yen may be limited as strategists and traders including Fullem said the market is awaiting the U.S. payroll report on March 9, and how stock markets will perform over the next few days to see whether the unwinding of the carry trade has run its course. U.S. employers are forecast to have added 95,000 jobs in February, down from 111,000 a month earlier, according to a Bloomberg survey."

"'If employment in the U.S. falls apart, we will see more unwinding' of the carry trade, Fullem said."

From MarketWatch. "Gold futures closed higher Tuesday to register their first gain in six sessions as a rebound in Asian and European stocks as well as gains on Wall Street helped boost demand for the precious metal. Gold 'is looking at forming a base around the $640 level,' Emanuel Balarie, senior market strategist at Wisdom Financial, said in e-mailed comments."

"'The recent decline from the highs has put gold in an oversold position, and I would expect any type of stability in the global marketplace to spur an onslaught of fresh buying, especially out of Asia,' he said."

"Gold for April delivery closed up $7 at $646.20 an ounce on the New York Mercantile Exchange. The contract had declined 7.3% from the closing level on Feb. 26."

"'Investors that blink might be surprised to see the price of gold back at last month's highs within a relatively short period of time,' said Balarie. 'In light of continued inflationary pressures, a weak U.S. dollar, and geopolitical tensions, the decline of gold was fundamentally unwarranted.'"

"Looking further ahead, Peter Spina, chief investment strategist at GoldSeek.com said he sees two scenarios for this month. Gold could rebound strongly from these levels and consolidate around the mid-$600s, or it can reverse and power ahead, ending the month 'approaching or exceeding the $700 mark.' But he said it seemed unlikely the retreat 'will last very long.'"

"Still, 'questions and valid doubts remain about the near-term and intermediate time horizon prospects of the precious metal in the wake of recent events,' said Jon Nadler, an analyst at Kitco Bullion Dealers. 'A true resumption of the bullish march may have been set back by weeks, if not months,' Nadler said. 'Volatility will remain a defining feature for the time being, as investors are keeping a nervous grip on various triggers.'"

"James Moore, analyst at TheBullionDesk.com, wrote in a note to clients: 'Physical players and bargain hunters will be keen to take advantage of sub-$650 gold, but I think the yellow metal may have to weather a little more weakness before short-term sentiment improves.'"

"'The long-term outlook remains strong though, with the current dip likely to be viewed favorably by investors seeking to enter the market,' Moore said."

"Other metals prices also posted Tuesday gains, as May silver moved up 23.5 cents to close at $12.985 an ounce, April platinum added $18.20 to end at $1,198.80 an ounce, June palladium rose $4.90 to close at $351.90 an ounce."

"'The larger exposure of speculative players to silver will keep the metal in a more volatile mood in the coming sessions,' Moore said."